Chinese economists and analysts have been expressing concerns about the health of the Chinese economy publicly.
In a customary New Year’s Eve speech on 31 December, President Xi Jinping highlighted some of China’s economic achievements in 2024. He said China’s GDP is projected to surpass 130 trillion yuan (approximately $18 trillion) in 2024, grain production would exceed 700 million tons, ensuring food security, and the production of new energy vehicles exceeded 10 million in a single year. Breakthroughs have been made in integrated circuits, artificial intelligence, and quantum communications.
Incomplete statistics provided by the China Briefing for 2024 are: value added of the primary, secondary and tertiary industry for the year 2024 was RMB 5,773.3 billion (US$790.9 billion), RMB 36,136.2 billion (US$4,950.2 billion), and RMB 53,065.1 billion (US$7,269.2 billion) respectively. Manufacturing registered rapid growth, reaching RMB 32.09 trillion (US$4.49 trillion), marking a 10.6% increase compared to the same period in 2023. The sector accounted for approximately 39.0% of the total GDP. In 2024, China’s global innovation index ranked 11th, making it one of the fastest-growing economies in terms of innovation over the past decade.
Despite these excellent statistics, in the past months, Chinese economists and analysts have been expressing concerns about the health of the Chinese economy publicly. They have been instructed by the state “not to publish statements that are contrary to central government’s policies” according to a report filed by the Singapore based Lianhe Zaobao. For example, in late 2024, the social media accounts of Gao Shanwen, chief economist of SDIC Securities, and Fu Peng, chief economist of Northeast Securities were blocked after the duo criticized China’s economic problems in public.
Gao highlighted issues such as high youth unemployment, stagnant consumption, and suggested that China’s GDP growth might have been overstated between 2021 and 2023. Similarly, Fu Peng had argued that weak domestic consumption and declining property prices had led to negative equity for some middle-class homeowners. Fu questioned whether the previous decade’s consumption growth was driven more by rising property values than by increasing incomes.
Worse, in a speech at the Financial Street Forum 2024 in Beijing on October 18, Li Jianjun, a member of the Party Committee and Vice President of the Central University of Finance and Economics, dropped a bombshell by revealing that as of June 2024, the total scale of local government debt in China was approximately 100 trillion RMB. This includes 42.23 trillion RMB in local government bonds and 57.16 trillion RMB in interest-bearing debt from local government financing vehicles (LGFVs).
Li disclosed that China’s total debt had reached approximately 129 trillion RMB ($18.25 trillion) by the end of June 2024, implying that the debt-to-GDP ratio had risen to about 103%, exceeding the internationally recognized danger threshold of 60%. Li highlighted that more than 60% of Chinese provinces and municipalities, including Tianjin, Chongqing, Guizhou, and Gansu, have debt-to-GDP ratios exceeding 300%.
The above revelations by the insiders suggest that China’s economic outlook may have deteriorated to a point where officials are conveying the severity of the situation. No wonder, during the Central Economic Work Conference, held on 12 December 2024, President Xi Jinping, while laying out a blueprint for the 2025 economic development, emphasised on “stability”, which appeared 28 times in his speech. Xi emphasized on the expansion of domestic demand, stabilizing the real estate and stock markets, stabilizing foreign trade and foreign investment, maintaining stable economic growth, ensuring general stability in employment and prices, exchange rate stability, financial stability and preserving a basic balance in the international balance of payments etc.
Following Xi’s New Year’s Eve speech, China’s Economic Daily on 1 January 2025 provided some more figures including the growth rate of 4.8%, but underscored that 2024 was the year of “seeking success in difficulties” (难中求成). The paper stated that in 2024, “China sought to develop its economy amid increasing external pressures and growing internal challenges. Externally, it said the international situation was marked by turmoil and complexity, with prolonged and escalating geopolitical conflicts, and intensifying “decoupling and supply chain disruptions.” Internally, there was insufficient domestic demand, difficulties in the operations of some enterprises, pressure on employment and income growth for the public, and ongoing risks and hidden dangers. The economic performance in 2024 followed a “high in the beginning, low in the middle, and rising at the end” trend, according to the Daily.
It could be discerned that two of the growth pillars of China’s economic miracle—investment and consumption have faced headwinds, and could be attributed to the real estate bubble bust. As I have argued in an occasional paper written for the Institute of Chinese Studies that the economic growth during the Reform Era (1979-2012) was driven by massive government investment, most of which went into infrastructure and real estate as Chinese citizens invested almost 70% of their savings in the latter.
The magnitude of this investment could be gauged through official figures released early February 2023 by Zheng Guoguang, Director of the Office of the Leading Group for the First National Natural Disaster Comprehensive Risk Survey of the State Council. According to the figures, “China has around 600 million buildings in urban and rural areas; 5 million kilometres of road networks; 900,000 bridges and tunnels, as well as more than 6,000 berths in coastal areas.” Added to this should be around 45,000 kilometres of high speed railway. In hindsight, such a massive overcapacity has led to a massive debt crisis.
As of 2024, China’s property sector, according to a study conducted by Xin Dai and Yaxin Chen for Swiss Re Institute, was grappling with significant debt challenges. The outstanding debt of the sector is estimated to be approximately RMB 60 trillion ($ 8.9 trillion), accounting for nearly 50% of the country’s GDP. Another data reveals that as of 2023, the value of personal housing loans in China amounted to 38.17 trillion yuan ($5.3 trillion). According to data released by the Central Bank of China, as of the end of 2022, 780 million people across China were in debt, with an average per capita debt of 133,400 yuan. With the bleeding property market, soaring unemployment rate, the debt crisis has made it extremely difficult for the mortgagees to service their debt.
With such a huge population reeling under debt, and stagnant social mobility, domestic demand remains week. According to Yahoo Finance data from IT Juzi shows that the number of companies founded and funded by the venture capitalists in China in 2024 is just 260, on track to dip below 2023’s tally of 1,202 and a 99% decline from a peak of 51,302 in 2018. The food and beverage industry has also been hit hard. According to data provided by Tencent, from 2023 to March 2024, 4.21 million restaurants closed their operations. It was reported that if this trend continues China would see the closures of over 2 million restaurants.
On the other hand, Xinhua reported that registered businesses in China rose 3.1% year on year to 189 million by the end of 2024. This however, doesn’t show how many small and medium enterprises (SMEs) are registered. According to a recent report by EU SME Centre (2024), by 2022 China had 52 million SMEs comparing 140 million of the year 2020. The report suggests that the SMEs contribute to more than 60% of GDP, 50% of tax income, 70% of technological innovation as well as 79% of job positions in China.
The above challenges have been largely dealt on three fronts—stimulus measures, trade-in schemes, and export of new technologies. As regards the first, in early November 2024, China announced a five-year package totalling 10 trillion yuan ($1.4 trillion) to tackle local government “hidden debt”, which the Chinese Finance Minister Lan Fo’an estimates could drop from 14.3 trillion yuan to 2.3 trillion yuan by 2028. Lan announced that starting in 2024, China will allocate 800 billion yuan annually from new local government special treasury bonds for five consecutive years, specifically for debt resolution. However, when the yields on such bonds is abysmal, will the public buy such bonds?
In order to spur consumption, the provincial governments have rolled out schemes such as issuance of consumption vouchers offering discounts on a variety of purchases. The government has also launched trade-in schemes valid for purchasing home appliances and even cars. Besides, the government has also increased salary of the government employees, albeit the increase ranges between 300 and 500 RMB.
Finally, it is the clean technologies—which are part of the “Hi-Quality Development” narrative—China believes would balance off the erstwhile investment magic driven growth. China is the largest producer of solar panels, wind turbines and lithium ion batteries accounting respectively for around 80%, 60% and 60% of the global production capacity. According to Guangdong Hydro and New Energy Enterprise, “the clean energy sector contributed approximately 11.4 trillion yuan (USD 1.6 trillion) to China’s economy in 2023, a 30% year-on-year increase. This means that clean energy accounted for 9% of China’s GDP in 2023, up from 7.2% in 2022.”
Certainly, China has risen as a dominant force in green technology, raising concerns among Western countries about potential unfair competition. In response, these nations have imposed tariffs on Chinese electric vehicles, while the outgoing US President, Jo Biden has called on his successor, Donald Trump, to confront China’s overcapacity and its dominance in clean energy. However, this seems unlikely unless the West drops the bogey of global warming and climate change. Despite facing substantial challenges in the property sector and sluggish domestic demand, China’s manufacturing sector remains robust, with a trade surplus exceeding $992 billion. This success can be credited to China’s long-term strategic planning, notably the “Made in China 2025” initiative introduced by Xi Jinping in 2015, which has now come to fruition.
* B.R. Deepak is Professor, Center of Chinese and Southeast Asian Studies, Jawaharlal Nehru University, New Delhi.